1 The General Ledger and Business Reporting (GL/BR) Process Accounting Information Systems 7e Ulric J. Gelinas and Richard Dull Copyright © 2008 Thomson Southwestern, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license.

2 Functions of GL/BR GL –accumulating data, classifying data by GL accounts, recording data in those accounts –fueling FR, BR and other reporting subsystems Accumulating ClassifyingRecording Reporting

3 Functions of GL/BR, Cont’d. BR –preparing general- purpose, external financial statements –ensuring that F/S conform to GAAP –generating web- based forms –generating ad hoc & predetermined business reports Accumulating ClassifyingRecording Reporting

4 Horizontal Perspective of the General Ledger and Business Reporting Process 1. Business processes (feeder processes) send updates to the business reporting department.

5 Horizontal Perspective of the General Ledger and Business Reporting Process 2. Treasurer notifies the business reporting department of investing and financing transaction activities.

6 Horizontal Perspective of the General Ledger and Business Reporting Process 3. Controller notifies the business reporting manager of various adjusting entries.

7 Horizontal Perspective of the General Ledger and Business Reporting Process 4. Adjusted trial balance figures are sent from the business reporting manager to the financial reporting officer.

8 Horizontal Perspective of the General Ledger and Business Reporting Process 5. Actual results are sent from the business reporting manager to the budgeting and managerial reporting managers; the actual results will be one of the inputs used in formulating next period’s budgets.

9 Horizontal Perspective of the General Ledger and Business Reporting Process 6. The financial reporting officer sends GAAP- based financial statements to the treasurer, controller, and various external constituencies (e.g., owners, potential investors, banks, potential lenders).

10 Horizontal Perspective of the General Ledger and Business Reporting Process 7. The managerial reporting officer sends performance reports to various cost centers, profit centers, or investment centers.

11 E-Business Angle Manual Reports –The old method of manually preparing financial reports –Financial reports are comprised of text and data from the operational data stores formatted as financial statements –Often data had to be re- keyed for each different report created XBRL Enabled Reports –Operational store data contains descriptive (semantic) tags –XBRL enabled report reads descriptive tag and merges data into report –Data from one data store can be used to generate many different reports including Web reports without re-keying Operational stores are financial information stored in databases used to create the chart of accounts, GL and financial reports

12 Integrated Systems Perspective Including ERP Events summarized automatically by the system eliminating the need for a separate GL process –The GL is simply a report summarizing transactions by account and by date in ascending order Treasurer still enters investment and financing transactions into treasury module Controller still enters adjusting entries Financial reports are generated by the system using ad hoc queries or pre-established reports

13 Responsibility Accounting Performance Reporting

14 Responsibility Accounting/Reporting System Duties of managerial reporting officer –Reports to assist internal management decision making –Performance reports comparing actual performance with budgeted performance –Reports are most detailed at lowest levels of management, least detailed at highest levels of management –It ties into the concept of responsibility accounting

15 Summary of Horizontal and Vertical Information Flows

16 Summary of Horizontal and Vertical Information Flows Horizontal flows –Events are processed in various operational systems –Culminates in GL and external business reports Vertical Flows –GL and other event information flow upward through responsibility accounting system –Culminates in internal performance reports

17 GL/BR Process: Context Diagram Various feeder processes provide event information Source of internal and external financial reports

18 Detail of common GL/BR processes GL/BR Process: Level 0 DFD

19 GL Hierarchical Coding 1113 Cash in Bank –1xxx=assets –x1xx=current assets –xx1x=cash accounts –xxx3=cash in bank –1111 might mean petty cash 1112 might mean change fund 1121 might mean trade accounts receivable 1122 might mean receivables from officers

20 Chart of Accounts Must be flexible to meet the firm’s financial and managerial reporting needs For a multi-entity firm, there is need to code for departments, geographical regions, product lines, divisions, and special reporting entities Should accommodate “rolling up” or consolidating accounts into statements using different forms

21 Technology-enabled Issues in Business Reporting FR modules in ERP systems Balanced Scorecard Business Intelligence Business Reporting via the Internet Public Databases Object-oriented databases

22 ERP Financial Module Many options available for processing business events that affect multiple processes Not all users do not need all these options For security reasons and for ease of use, we limit the access to menu items to only those needed a user to perform his or her responsibilities We limit the menu options that appear We allow a user to have different privilege levels for different information—that is, view access, write access, entry access, and/or change access Carefully set up the system limitations for that specific user Each user has their own ID and password

23 Balanced Scorecard Methodology for assessing organization’s business performance via –Financial –Internal business processes –Customers –Innovation and improvement activities Functionality included in applications by all major ERP vendors

24 Business Intelligence Integration of statistical and analytical tools with decision support technologies Facilitates complex analyses of data warehouses by managers and decision makers Typical module in ERP systems

25 Extensible Business Reporting Language (XBRL) XBRL is a form of XML-based language consisting of a set of tags used to unify presentation of business reporting information into a single format Easily read by many software packages Can be easily searched by web browsers Enables easy uploading and downloading of information to other software packages for update, analysis, etc

26 Public Databases Aid to financial reporting officers in determining BR treatments National Automated Accounting Research System (NAARS) The Internet may be viewed as one huge public database

27 IT Control Processes for Workstation-to-Workstation Networks Typical Controls –Passwords and access controls –Access logs kept and reviewed –Call back procedures for remote log on –Controls on database/file access –Controls on level of access/privileges, e.g., read-only file access –Diskless workstations –Data encryption and digital signatures –Removable drives –Backup facilities for extended network failures –File locking/contention controls

28 Workstations Connected to Servers Typical Controls –Server logs kept and reviewed –Standardized file transfer formats –Read-only access to database –Front-end workstations process data relieving server –Data entry to event data store and subsequent batch update to database

29 Sarbanes-Oxley Act of 2002 Section 302 –Requires CEO and CFO to certify that financial statements contain neither material untrue facts nor omit material facts. –Penalty for violation of section 302 up to 20 years prison and $5 million in fines Section 401 –Requires financial statements that clearly reflect the economic reality of business events Section 404 –Defines report on internal control that must be provided with annual report –Requires management assertion and auditor attestation on internal control effectiveness Section 409 –Requires rapid and current disclosure of information regarding material changes in financial conditions

30 Current Environment of Financial Reporting Today’s environment demands rapid access to information –Investors want information sooner –Sarbanes-Oxley demands “rapid and current” disclosures –SEC has shortened the time companies have for reporting certain events –Real-time reporting of events summarized in the GL is just over horizon